Federal Reserve Notes

Federal Reserve Notes, also United States banknotes or U.S. banknotes, are the banknotes used in the United States of America. Denominated in United States dollars, Federal Reserve Notes are printed by the United States Bureau of Engraving and Printing on paper made by Crane & Co. of Dalton, Massachusetts. Federal Reserve Notes are the only type of U.S. banknote currently produced. Federal Reserve Notes are authorized by Section 16 of the Federal Reserve Act of 1913 (codified at ) and are issued to the Federal Reserve Banks at the discretion of the Board of Governors of the Federal Reserve System. The notes are then put into circulation by the Federal Reserve Banks, at which point they become liabilities of the Federal Reserve Banks and obligations of the United States. Federal Reserve Notes are legal tender, with the words “this note is legal tender for all debts, public and private” printed on each note. (See generally .) They have replaced United States Notes, which were once issued by the Treasury Department. Federal Reserve Notes are backed by the assets of the Federal Reserve Banks, which serve as collateral under Federal Reserve Act Section 16. These assets are generally Treasury securities which have been purchased by the Federal Reserve through its Federal Open Market Committee in a process called debt monetizing. (See Monetization.) This monetized debt can increase the money supply, either with the issuance of new Federal Reserve Notes or with the creation of debt money (deposits). This increase in the monetary base leads to larger increase in the money supply through the fractional-reserve banking as deposits are lent and re-deposited where they form the basis of further loans.